As companies grow, they typically establish a treasury centre. These centres, often working quietly behind the scenes under the CFO and accounting departments, are crucial for managing liquidity, financial risks, and bank relationships.
Corporate banking has long been a pillar of Luxembourg’s financial centre, with international corporate banks such as HSBC, Deutsche Bank, Société Générale, BNP Paribas, J.P. Morgan, Intesa Sanpaolo, and others having established corporate banking hubs in the Grand Duchy.
For multinational corporations, centralising treasury activities in global or regional centres has become strategically vital. This consolidation, such as pooling European subsidiaries’ liquidity management, helps optimise financial flows.
François Masquelier, president of ATEL (Luxembourg Association of Corporate Treasurers) and the European Association of Corporate Treasurers (EACT), and Nick Ashton, Country Head-Luxembourg HSBC Global Payments, analyse these strategies and the conditions that these corporations look for when establishing these centres in one country rather than another.
Centralising treasury activities on a global or regional scale ensures better liquidity control.
Advantages of Centralising Treasury Activities for Large International Companies
François Masquelier:
The primary advantage is efficiency, concentrating expertise and tools. Centralising treasury activities on a global or regional scale ensures better liquidity control. It provides a comprehensive view of the group’s total exposure, enabling the offsetting of positions—between loans and investments, various currencies, and different jurisdictions—significantly reducing costs.
Centralised treasury management also enhances visibility into cash flows, improves risk management, and leverages economies of scale to lower costs and increase operational efficiency. Additionally, it supports more effective decision-making by providing a holistic view of financial status, allowing for timely and informed decisions. Enhanced forecasting accuracy is another key benefit, as centralised data allows for more reliable financial projections. This centralisation also supports strategic agility, enabling companies to respond swiftly to market fluctuations and operational challenges.
Nick Ashton:
As operational or geographical complexity increases, regional treasury centres offer benefits, especially considering different time zones and payment cut-off times. A company headquartered in New York, for example, benefits from a European treasury centre to manage activities in the same time zone as the payment infrastructure, banks, and suppliers. This not only optimises cash management but also aligns operations with local business hours, enhancing efficiency and responsiveness. By localising treasury operations, companies can better manage regional risks, adhere to local regulations, and tailor financial strategies to specific market conditions.
Nick Ashton
HSBC’s significant presence in Luxembourg underscores its strategic importance for regional treasury centres, especially for global payment solutions.
Choosing the Right Country for a Regional Centre
FM:
Historically, favourable tax regimes were the primary factor. Today, the decision is influenced by a combination of global expertise and other factors that enhance the viability of a specific location, with taxation being just one element. Multinationals look for strategic locations central to their interests. A Eurozone location is advantageous for companies with strong European ties. Additionally, integrating into a robust banking ecosystem with competent personnel is crucial. The stability of the country is also essential; a Triple-A rating is a strong selling point. Countries with strong financial infrastructure, such as Luxembourg, are attractive for their regulatory stability, advanced financial services, and availability of skilled professionals.
NA:
A multilingual talent pool is vital. In a global company, you need staff fluent in English, French, German, and a host of other languages. The local ecosystem matters too, as the work undertaken requires lawyers, accountants, and banking services. Access to a comprehensive support network, including regulatory experts and advanced technological infrastructure, is also critical in ensuring smooth treasury operations.
While its tax system isn’t the most advantageous, the country benefits from a Triple-A rating and hosts major international banks specialising in corporate services.
François Masquelier
Luxembourg’s Appeal for Multinational Treasury Centres
FM:
Luxembourg checks many boxes. While its tax system isn’t the most advantageous, the country benefits from a Triple-A rating and hosts major international banks specialising in corporate services. In recent years, several banks have strengthened or set up operations in Luxembourg at the behest of large corporate clients. The country also excels in wealth management, investment funds, and family offices, with extensive expertise from the Big Four and major law firms.
NA:
HSBC’s significant presence in Luxembourg underscores its strategic importance for regional treasury centres, especially for global payment solutions. While we have operations across Europe, Luxembourg remains a key element of our strategy. The country’s commitment to innovation and digital transformation in the financial sector further enhances its appeal for setting up advanced treasury functions.
Treasury APIs allow treasurers to manage all banks from a single tool, streamlining forecasts, transactions, and automatic account balancing.
Essential Bank Expertise for Corporate Treasury Centres
FM:
Competent relationship managers are essential. They need to understand their corporate client’s core business, serving as the interface with the bank’s specialised departments. These managers must possess deep knowledge of global financial markets, regulatory environments, and advanced financial products to effectively support treasury operations.
NA:
Three key elements are vital: knowledgeable client advisors, robust connectivity, and sophisticated liquidity products. International companies need seamless integration with their treasury management systems across all their banks, ensuring efficient cash concentration and pooling. Advanced treasury systems should facilitate real-time data access, automation of routine processes, and robust cybersecurity measures to protect sensitive financial information.
The Role of Technological Innovation in Treasury Activities
FM:
Treasury has evolved the most within finance over the past 20 years. Technological innovation is now central. The 2008 crisis taught us that centralisation and automation are crucial. Automation minimises fraud risks and frees time for more critical functions. Collaborating with Fintech, we seek the best solutions for our activities. We need platforms that enable simultaneous work with multiple banks. The adoption of technologies like AI and blockchain can further enhance transparency, security, and efficiency in treasury operations.
NA:
Achieving top connectivity between banks and treasury centres is crucial. Developing an intuitive online banking portal is essential for direct client relationships. Increasingly, these relationships also involve Fintechs, which develop treasury management systems. Treasury APIs allow treasurers to manage all banks from a single tool, streamlining forecasts, transactions, and automatic account balancing. At HSBC, we’ve heavily invested in API capabilities, allowing seamless interaction through top Fintech solutions or our online channels. Integrating advanced analytics and machine learning can further improve risk management and decision-making processes in treasury functions.
Attracting Young Talent to Treasury Centres
FM:
The talent shortage is acute in our sector, with few universities offering specialised treasury programmes. Competing with banks and the Big Four for top profiles, our role is to make treasury careers appealing. Highlighting the diversity and rapid evolution of tasks due to technology is key to attracting the younger generation. Continuous professional development and exposure to cutting-edge financial technologies are essential in building a skilled and motivated treasury workforce.
NA:
In banking, our transaction banking and cash management teams support corporate treasury, providing essential solutions and services. It’s a fascinating and fulfilling role, supporting the real economy and offering numerous growth and career development opportunities. Emphasising the strategic importance of treasury roles in driving financial innovation and supporting global business operations can attract top talent to this critical function.